In Re Nuvelo, Inc. Securities Litigation 07-CV-04056-Order
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Case3:07-cv-04056-VRW Document101 Filed08/17/09 Page1 of 28 1 2 3 4 5 6 7 8 9 10 11 t 40. IN THE UNITED STATES DISTRICT COURT 12 U U FOR THE NORTHERN DISTRICT OF CALIFORNIA 4-oo .^ +^ 13 14 A Q IN re NUVELO, INC, SECURITIES Master File No 15 LITIGATION / C 07-4056 VRW 0 16 p 17 Class Action This Document Relates to: W-1 18 All Actions / ORDER 19 H 0. 20 Plaintiffs filed an amended consolidated complaint o ^ 4-4 21 (“Prior Complaint”) alleging violations of federal securities laws o 22 on November 9, 2007. Doc #31. On December 4, 2008, the court AQ 23 granted defendants’ motion to dismiss the Prior Complaint (“Prior 24 Order”). Doc #69. The Prior Order granted plaintiffs leave to b Z 25 amend. Doc #69 at 34-35. Plaintiffs did so on January 23, 2009, o a^ filing a second consolidated amended complaint (“SAC”). Doc #76. 0 26 W-1 27 On March 24, 2009, defendants moved to dismiss the SAC. Doc #78. 28 This order addresses that motion. Case3:07-cv-04056-VRW Document101 Filed08/17/09 Page2 of 28 1 I 2 As an initial matter, defendants request judicial notice 3 of 42 documents contained in Jeffrey Kaban’s declaration (Doc #80, 4 Exhs A–9[) relating to defendants’ motion to dismiss. Doc #79. 5 Federal Rule of Evidence 201 allows courts to take judicial notice 6 of matters that are “capable of accurate and ready determination by 7 resort to sources whose accuracy cannot reasonably be questioned.” 8 Fed R Evid 201 (b) . 9 Plaintiffs do not oppose the court taking judicial notice 10 of exhibits A-GG and LL-9[. Doc #91 at 2. Because the request for 11 judicial notice is unopposed as to those documents, and they are t 4o 12 either referenced in the SAC or demonstrate information available C U 13 to the market during the class period, the court takes judicial .0 .4 notice of exhibits A-GG and LL-9[. Doc #80. Doc #91 at 2-4. 14 ^A 15 Plaintiffs do, however, oppose defendants’ request for 16 judicial notice of exhibits HH-KK. Doc #91 at 2. Exhibits HH-KK 4 0 p17 include a Pharmaceutical Statistics journal article (Exh HH), two w 18 Food and Drug Administration (“FDA”) publications (Exhs II, KK) and 19 an FDA PowerPoint presentation (Exh JJ). All four documents relate 20 to a factual dispute relevant to defendants’ motion to dismiss: 21 FDA guidance on the statistical standard required to pass placebo- 22 controlled studies. Plaintiffs argue that “the purported ‘facts’ 23 that Defendants seek to prove by these documents may not be 24 judicially noticed because they are subject to dispute.” Doc #91 25 at 2. 26 While the court recognizes that the facts described in 27 the four disputed documents are not the proper subject of judicial 28 notice, defendants merely seek judicial notice of the fact that 2 Case3:07-cv-04056-VRW Document101 Filed08/17/09 Page3 of 28 1 these documents were publicly available during the time the fraud 2 alleged in this action occurred. Doc #94 at 2. Courts hearing 3 securities fraud cases routinely take judicial notice of documents 4 with unquestioned authenticity that demonstrate the information 5 available to the market during the class period. See Construction 6 Laborers Pension Trust of Greater St Louis v Neurocrine 7 Biosciences, Inc, 2008 US Dist LEXIS 38899, *5 (S D Cal May 12, 8 2008) (taking judicial notice of FDA guidelines because they were 9 “publicly available to a reasonable investor”). These documents 10 may be considered “to establish ‘whether and when certain 11 information was provided to the market’ not the truth of the 40. 12 matters asserted in the reports.” In re Infonet Servs Corp O U 13 Securities Litigation, 310 F Supp 2d 1106, 1116 (C D Cal 2003), .0 14 quoting In re PetSmart, Inc Securities Litigation, 61 F Supp 2d A^A 15 982, 987 n1 (D Ariz 1999). Accordingly, the court GRANTS 16 defendants’ request for judicial notice of exhibits HH-KK in order Z 17 to consider the complete record of the defendants’ alleged w 18 fraudulent statements and omissions in light of the other 19 information available to the market. 20 21 II 22 In deciding a motion to dismiss, the court must accept 23 all well-pleaded factual allegations in the complaint as true. 24 Blake v Dierdorff, 856 F2d 1365, 1368 (9th Cir 1988). Accordingly, 25 the following allegations appear in the SAC. Doc #76. 26 Plaintiffs are a class consisting of all purchasers of 27 the publicly traded securities of defendant Nuvelo between January 28 5, 2006 and December 8, 2006, inclusive (the “Class Period”). Doc 3 Case3:07-cv-04056-VRW Document101 Filed08/17/09 Page4 of 28 1 #76 at 4. Defendants are a biopharmaceutical company Nuvelo and 2 several of Nuvelo’s senior officers and managers: Ted Love, Gary 3 Titus and Michael Levy. Id at 20-21. The SAC alleges that Nuvelo 4 stock traded at artificially high prices during the Class Period 5 because of fraud by defendants. Id at 4, 82-83. 6 Prior to and during the Class Period, Nuvelo was engaged 7 in preclinical and clinical testing of medical drugs. Id at 4. 8 Nuvelo’s “lead product” was a drug called alfimeprase that Nuvelo 9 was testing for its safety and ability to dissolve blood clots. 10 Id. Nuvelo was in the process of testing alfimeprase in order to 11 gain regulatory approval of the drug and to bring it to market. ;9^ U ^ j 12 Id. ^^ ° 13 To gain regulatory approval, the FDA requires that the A .4 14 sponsor of a drug demonstrate that it is safe and effective in 15 three human clinical trials (“phase 1", “phase 2" and “phase 3"). 0 z 16 Id at 28. The FDA does not approve a drug in general, but rather ., p_!5 17 approves a drug for a specific use, or “indication.” Id. ^. w° 18 In 2003, Nuvelo began conducting clinical trials of 19 alfimeprase for two indications: dissolving blood clots in the 20 legs (PAO) and dissolving blood clots in occluded catheters for 21 patients undergoing treatment (CO). Id at 24. The FDA approves 22 particular claims of efficacy based on the results of the trials. 23 Id at 28. So Nuvelo designed its alfimeprase trials to demonstrate 24 particular claims about the drug for the treatment of both PAO and 25 CO. 26 A 27 Nuvelo called its clinical program for CO SONOMA (Speedy 28 Opening of Non-functional Occluded catheters with Mini-dose 4 Case3:07-cv-04056-VRW Document101 Filed08/17/09 Page5 of 28 1 Alfimeprase). Doc #76 at 36. SONOMA’s primary endpoint, or the 2 claim Nuvelo was attempting to get approval for, was alfimeprase’s 3 ability to clear occluded catheters fifteen minutes after 4 administration of the drug. Id at 28-29. If Nuvelo could prove 5 that alfimeprase increased blood flow rates of occluded catheters 6 in fifteen minutes, it would gain an advantage over a competing 7 drug —— Genentech’s Cathflo Activase, which had been proven in 8 clinical trials to increase blood flow rates of catheters in thirty 9 minutes. Id at 29. 10 Nuvelo completed the phase 2 trials for CO (SONOMA-1) in 11 2004. Id at 37. In a December 2004 press release, Nuvelo reported ;9^ 12 that one dose of alfimeprase produced cumulative blood flow rates c U 13 of fifty percent in occluded catheters at fifteen minutes compared 9Z.4 14 to zero percent for Cathflo after fifteen minutes. Id at 37. 15 In May 2005, Nuvelo announced its phase 3 clinical trial 0 16 program for CO. Id at 38. The program consisted of two phase 3 ., p_!5 17 trials: SONOMA-2 and SONOMA-3. Id. SONOMA-2 was a randomized, ^. w° 18 double-blind, 300 patient study testing the efficacy of alfimeprase 19 in restoring blood flow to occluded catheters after fifteen 20 minutes. Id. Two-thirds of the patients received alfimeprase and 21 the remainder received a placebo, or a substance having no effect. 22 Id. SONOMA-3 was an 800 patient trial evaluating the safety of 23 alfimeprase. Id. 24 The success of SONOMA-2 rested on the statistical 25 difference in the restoration of function between the alfimeprase 26 group and the placebo group after fifteen minutes. Id. To gain 27 approval, the FDA requires a statistically significant difference. 28 Doc #76 at 29. “Statistically significant” means that a given 5 Case3:07-cv-04056-VRW Document101 Filed08/17/09 Page6 of 28 1 result is unlikely to have occurred by random chance or due to 2 factors outside the control of the study. Id. Statistical 3 significance is expressed as a “p-value,” which represents a 4 probability that a particular hypothesis tested by a trial happened 5 by chance. Id. Statistical significance consisting of a p-value 6 of less than 0.05 has “traditionally been considered convincing 7 evidence by the FDA.” Id at 29. 8 The SAC alleges that defendants misled investors by 9 failing to divulge that Nuvelo had an agreement with the FDA that 10 regulatory approval rested on SONOMA-2 achieving a much higher 11 threshold for statistical significance: a p-value of 0.00125. Id t 40. 12 at 38-39. The May 26, 2005 press release announcing the design of C U 13 the phase 3 CO program stated that the program was “modeled after .0 .4 14 the Cathflo® Activase® program in this indication.” Id at 54.